Question

Parker Corporation has issued 2,000 shares of common stock and 400 shares of preferred stock for a lump sum of $74,000 cash.

Instructions

1. Give the entry for the issuance assuming the par value of the common stock was $5 and the fair value $30, and the par value of the preferred stock was $40 and the fair value $50. (Each valuation is on a per share basis and there are ready markets for each stock.)

(b) Give the entry for the issuance assuming the same facts as (a) above except the preferred stock has no ready market and the common stock has a fair value of $24 per share.

Answer 1

Fair value of Common Stock = 2000*30 = 60000

Fair value of preferred stock = 400*50 = 20000

Date	account and explanation	Debit	Credit
	Cash	74000
	Common Stock (2000*5)		10000
	Paid in capital in excess of par value-Common Stock (74000*60/80)-10000		45500
	Preferred stock (400*40)		16000
	Paid in capital in excess of par value-Preferred stock (74000*20/80)-16000		2500

Fair value of Common Stock = 2000*30 = 60000

Fair value of preferred stock = 400*50 = 20000

Date	account and explanation	Debit	Credit
	Cash	74000
	Common Stock (2000*5)		10000
	Paid in capital in excess of par value-Common Stock (2000*24-10000)		38000
	Preferred stock (400*40)		16000
	Paid in capital in excess of par value-Preferred stock		10000